Pause and give thanks this month

Sunday

Nov 18, 2012 at 12:01 AM

November has been and will continue to be a busy month. We saw Barack Obama re-elected as President; we saw the Senate stay in the Democratic party hands and the House stay in Republican party hands with nearly $6 billion dollars spent to wind up just about where we started.

November has been and will continue to be a busy month. We saw Barack Obama re-elected as President; we saw the Senate stay in the Democratic party hands and the House stay in Republican party hands with nearly $6 billion dollars spent to wind up just about where we started.

I certainly hope that those who were re-elected and those newly elected can put their partisanship aside. I think most of us are aware that we are in a position where pain will be necessary to fix our economic imbalances. This is not too different from a family that has lived off of a credit card to maintain a lifestyle that can't be paid for with current income any longer. At some point the credit will cease to be extended. It is usually preferable to let your creditors know that you are serious about becoming financially responsible and showing them a plan before they demand one.

It may be that we need cuts in spending and tax increases. I hate to say that but we are so deep in debt that we need all hands on deck.

I frequently talk about how the Fed is debasing the dollar by printing trillions of dollars. As I was watching "The Men Who Built America" on the History Channel, there were some points that really made this point stand out.

First of all, if the government taxed all of us at 90 percent there would probably be riots in the streets. However, if they keep printing money backed by nothing but (your and my) promise to repay, they can basically do the same thing and nobody understands it until it is too late.

In the History Channel show, it was said that J.P. Morgan bought Carnegie Steel for $480 million. The next sentence was "that would be over $40 billion in today's money." This transaction took place in 1901. Since then our dollar has lost 98.8 percent of its value. Take 480 million and divide it by 40 billion and get a surprise as I did.

I was also surprised to learn that Henry Ford sold a Model T for $800 in the early 1900s. Part of the story that intrigued me was that Ford was almost forced out of business by a company that had a patent on the automobile. Basically, any car made had to be approved by a small group and royalties paid. After Ford was denied the right to produce his cars, he sued and won. Without that court ruling and free competition America would look very different today. It is possible that automobiles would have only been for the wealthy and the suburbs would not exist in their current form.

It amazes me that my old high school football coach bought a brand new VW Beetle for $800 in the late 1970s. Most domestic models were $1,000-$1,500 and were far superior to the Model T. Even a Cadillac or an Audi may have been an astonishing $3,000 or so at that time. When one of my old friends graduated from the Air Force Academy, we all were surprised when he spent $3,000 on an Audi Fox.

While we are conditioned to think that "things just get more expensive" that has not always been the case. As I have written before, as productivity gets more efficient, prices should go down as materials and finished products are delivered more economically.

An ideal example would be the transportation technology that sprang up between 1800 and 1900, mainly the railroads. This led to price decreases of 50 percent for many staples of life. A basket of goods (food) in 1800 that cost $200 would have been $100 in 1900. The reason is that we were able to more adequately assess the value of the dollar (it was gold backed and limited in quantity) and market forces were competing for that limited dollar.

Compare that to today where there are rules and regulations that are passed to protect the largest of companies and dollars are created by the billions and trillions. This stymies real competition and leads to higher prices for all of us.

As part of the "Men Who Built America" program, it also showed the moguls getting together and getting President William McKinley elected to protect their power. Here we are 110 years or so later and the names have changed but the game is still being played in the same way.

Eventually, as in all of history, the pendulum will swing back the other way. Until then remember that as we celebrate Thanksgiving this Thursday we still have a lot to be thankful for in this country.

Those who cease to be thankful for what they have may see what they have taken away.

Mike Savage is financial adviser and president of Savage Financial Group in East Stroudsburg, which offers securities through Raymond James Financial Services.